It has been an acrimonious and personal campaign.

iStockPhoto

One candidate paints the other as an establishment stooge playing fast and loose with campaign rules. The incumbent says he is the only one qualified to stand up for the little guy getting throttled by Washington.

What’s at stake? A board seat for the front-line regulator of stockbrokers. The three-months-long, hard-fought campaign for leadership at the Financial Industry Regulatory Authority draws to a close on September 19, when the organisation is to announce the winner among incumbent Robert Keenan, the owner of a small Arkansas brokerage, his outspoken challenger Stephen Kohn of Lakewood, Colorado, and two other candidates.

“It’s always been like trench warfare,” said Jed Bandes, a Clearwater, Florida, broker who was elected to Finra’s board in 2010 after a campaign depicting his chief rival as a mannequin, suggesting she was the regulator’s puppet. He was ousted three years later by Keenan.

It is a quirk of history and process that one of the country’s most powerful financial regulators allows the industry it oversees to elect some of its officers. While Finra isn’t a government agency and ultimately answers to the Securities and Exchange Commission, Congress has sanctioned its role as a regulator of the brokerage industry.

But Finra was founded in 1939 as a voluntary association of brokers setting standards for handling trades in the over-the-counter market. At the time, it was called the National Association of Securities Dealers. The organisation, which changed its name in 2007, sets many of the rules that govern what the country’s 641,000 brokers can sell to retail investors and has the power to discipline members.

Related

Finra’s bylaws require that a majority of its 24-member governing board have no industry ties. But Finra has maintained some elements of an industry association, including three board seats reserved for small brokerages whose election is determined by roughly 3,500 small firms. That approach has fostered the unusual dynamic of candidates campaigning for office at the overseer by vowing to lighten its oversight.

Finra veterans trace the hardball campaigning origins to Long Island, New York, broker Alan Davidson. Davidson, who died in 2013, was the first candidate not backed by Finra to win a board seat – when large and small brokers ran against each other – by upsetting James Dimon in 1998, just a month after he had been forced out as Citigroup president. Dimon went on to become chairman and chief executive of JP Morgan.

Davidson tapped into a mounting hostility toward Finra among many small-broker members who resented its exhaustive examinations and proliferating rule book. Finra’s board used to nominate favoured candidates but stopped when most were defeated.

Lisa Roth, a San Diego compliance consultant and broker, was one of the last to run with Finra’s imprimatur, in 2010. She recalls one brokerage executive telling her: “I would vote for a grapefruit before I voted for the Finra nominee.’” She lost to Bandes, who recalls blast emailing a photo of a mannequin suggesting Roth was “nothing more than a puppet for the board”. Roth said opponents unfairly painted her as pro-management even though she had worked for years to lighten regulation for small firms.

Three years later, Bandes lost his re-election bid to Keenan of Arkansas by 26 votes out of 1,336 cast. Keenan said he personally called 3,500 firms, taking eight hours a day over six weeks. Bandes blamed Keenan for insinuating he backed rules that were unpopular with brokers, a charge Keenan denied.

On the board, Keenan has claimed credit for helping defeat a proposal for a surveillance system that would have given Finra more data about securities that brokers sell to customers and whether those products fit the customers’ risk tolerance. Brokers viewed the system as a big-brother tool that would lead to more enforcement cases.

In the current re-election campaign, Kohn, a Denver-area broker, said the incumbent has become too cosy with Finra, blaming him for unpopular rules such as one governing accounts held by a broker’s spouse or children.